Aristocrats, Champions, and Achievers

I have to apologize, this post should have been one of my first ones but I got wrapped up in talking about other things and analyzing specific stocks. Hopefully many of you knew of the following lists, but for those of you just starting in dividend growth investing the following links are a valuable research tool.

Our main goal is to find stocks that not only pay a dividend every year, but also raise their dividend each year.  There are a few official lists that keep track of this information for us.  Each of these is a great place to start looking for potential investment ideas.  Of course, just because a stock is on one of these lists does not mean its a good buy.

Dividend Stock Analysis: Altria (MO)

I'm not sure there is a company that has created more wealth for investors over the past 40 years than Altria Group (formerly known as Philip Morris).  Between the dividends they collectively paid and companies that they've spun-off (Miller Brewing Company, Kraft Foods, and Philip Morris International) you would have made a great deal of money being a long-term shareholder.  Of course in hindsight investing we're all millionaires.  What we're concerned about is can Altria continue creating that type of wealth for its investors, or has its heyday passed by.  Altria is the latest stock I put through my analysis that was recently posted on SeekingAlpha.com.

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Side note:  When a stock like Altria creates so much wealth for shareholders it also can create a lot of loyalty.  As you will see in some of the comments on my post, these loyal shareholders don't take to kindly to my analysis of Altria as a future dividend growth stock.

Boring Terms We Need To Know: Cash Flow

You've probably noticed in my stock analysis that I like to use cash flow.  This is essentially net income for a company, but I feel cash flow is a much better gauge for measuring a company's financial health.  Net income (or earnings) can be more easily manipulated by accounting measures and does not always reflect the actual amount of money made for a period of time. So earnings does not always equal cash.  As dividend growth investors we care about cash first and foremost as a dividend payment is simply cash going from the company to the shareholder.

The Key to Smart Dividend Investing

Ask most income-seeking investors what they like best about dividend stocks, and they'll tell you the obvious answer: their current yield. But if you want to be a smarter long-term dividend investor, you have to go beyond current yields to learn the secret of dividend longevity -- in order to make sure those payouts will keep coming year after year, decade after decade.

It's easy to understand, though, why so many investors look first at how much income a stock will pay them right now. It's really difficult to find good sources of investment income outside the dividend-stock arena, as interest rates on bonds and other fixed-income investments are near rock-bottom levels.   Read More

Dividend Stock Analysis: Microsoft

For our second stock analysis I decided to choose another holding of mine that I believe would turn out to be a buy based on my analysis. I was part right. I knew there would be flaws with my model, but I never intended for it to be the definitive answer to "should I buy this stock". This week I am analyzing Microsoft (MSFT).


This former stock star used to be the top holding in most major mutual funds in the 90s and early 2000s. Microsoft was constantly growing and consistently making billions in cash every year. Although their growth as certainly slowed, the billions of dollars continue to be made. Like Intel, Microsoft has transformed itself into a cash cow business that now rewards its investors in dividends instead of hoarding all the cash they make. Microsoft is in the early stages of a dividend paying company, and my analysis show's this may be a great time to get in on the action.

When Do We Sell?

Since I reviewed Intel about a month ago the stock has gone up over 10%.  It was a nice jump and long overdue in my opinion.  The stock has been hanging around $20 area for several years now, all the while it has been beating analysts estimates and raising its revenue and income guidance. Personally I think Intel is still considerably undervalued based on present day valuation, but as a dividend investor I absolutely love being able to buy a dividend growth stock this cheap.  After all, the lower the price the higher the dividend yield.

But as dividend investors we don't care that much about the price of the stock.  We care about it when we are considering purchasing the stock, but after a purchase we should care about the dividend fundamentals and not the price.  I've gotten a few emails from people asking when I would consider selling part of my position in Intel and take some profits.  My answer of when I plan to sell Intel, "hopefully never".

I don't buy dividend stocks in order to make a gain on price.  I buy a dividend stock because I think that company will be around when I retire.  I believe that stock will continue to pay and raise their dividend for the rest of my life.  I want that stock to be providing me a passive income stream through dividend payments when I am 60+ years old.

Of course, that's in a perfect world.  There will be times when a dividend stock falters and its fundamentals forces us to sell.  Hopefully this is a rare situation, but we need to identify those situations that will cause us to sell our stock.

Dividend Stock Analysis: Kimberly-Clark Corporation

For my first in-depth dividend stock analysis using my new rating system I chose a stock I have owned for over a year now, Kimberly-Clark (KMB).  You may not be familiar with the company, but I am certain you are familiar with many of their brands.  KMB is a consumer care products company specializing in paper based products.  Huggies, Depends, Cottonelle, and Kleenex are just a few of their popular brands.

As a dividend stock investor I pay attention to who makes the products I use and have become loyal too due to their superiority over competing brands.  As a new father I am very happy with the Huggies diapers, when I reach for a box of tissues at the store I always look for Kleenex brand, and no matter what the price I will ALWAYS buy Cottonelle Aloe & E toilet paper.  Sorry if that last one was too much information, but Cottonelle is the reason I first looked at KMB stock.  Seriously, there is not other TP brand that compares to it.

Rating KMB gave me a good first impression on my new rating system.  When I purchased the stock a year ago the fundamentals were much different than they are today and it would have scored much higher than it does now.  I think this a good sign for my rating system though when using hindsight.  My stock analysis was selected by SeekingAlpha and published this morning and can viewed by clicking the "read more" link below.

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Rating A Dividend Growth Stock

Miss me?  Sorry, I've been caught up in World Series baseball here in St. Louis and then had some computer "nerd" training all last week.  Well I'm back now, so lets get back to talking dividend stocks.

Since I first reviewed Intel a few weeks back I've been working on a way to analyze a stock and quantify it in order to rate if its an attractive buy.  I've come up with something that is a strong foundation, but this may be tweaked in the future.

When analyzing a dividend stock there are three aspects we are concerned with: dividend reliability, dividend growth, and fair value.

Boring Terms We Need To Know: Dividend Payout Ratio

The second term in our "Boring Terms We Need to Know" series is dividend payout ratio. Dividend payout ratio is an important statistic that we need to be aware of and use when analyzing a dividend stock.  If you found Yield on Cost to be fairly easy to grasp, then you'll have no problems understanding dividend payout ratio.

Dividend payout ratio is simply the percentage of a company's earnings that is paid out to its investors in the form of dividends.  The ratio is easy to find on Yahoo Finance.  Just go to the a stock's quote page, click on "Key Statistics" link and search for "Payout Ratio".  Here is an easy example if you want to figure out the ratio on your own.

Banking Stocks Presenting Dividend Values

Four years ago you would be hard pressed to put together a dividend portfolio without owning a few banks. In fact, the financial sector of the S&P 500 Index paid $51 billion in dividends to shareholders in 2007. Everyone is well aware of the major financial meltdown that occurred soon after causing many banks to cut or even suspend their dividends. By 2010, the financial sector was only responsible for about $19 billion in dividends, a drop of 62%.

Despite the dark cloud that still resides over banks today, there are positive signs that would lead one to believe a rebound could be near. 

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Roth IRA + Dividend Stocks = Awesome!

How many of you are aware of what a Roth IRA is all about?  How many of you are actively investing and maxing out your Roth IRA?  My guess is very, very few... and if that is the case well, pardon me, but you're crazy!  Perhaps you think taxes won't be as high when you retire as they are now (ha!).  Maybe you enjoy paying taxes and feel the government will spend your tax dollars efficiently and intelligently (Commie!).  

Ok, most likely you don't fully understand the benefits and you'd rather spend your money on other things you feel are more important today.  Well hopefully a recent article that I had published on Seeking Alpha will change your mind... Read On

What Einstein Would Invest In Today

From time-to-time I plan to repost articles I find on the web that apply to our investment strategy. Below is one of those I found enjoyable and applicable.

Albert Einstein wasn’t famous as an investor. He was a genius who revolutionized theoretical physics. But if he were alive today, it’s pretty clear what he would be doing with his money. And you should be doing it, too. Let me explain… It’s a truism that when times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk. This is exactly the opposite of what they should be doing, of course.

But today you have a great opportunity to both limit risk and generate superb returns in your stock portfolio with – stifle that yawn – stodgy, old dividend-paying stocks. These investments aren’t nearly as boring as you may think. And in the decade ahead, their returns are likely to be outstanding. Dividend stocks alone won’t generate a mouth-watering return. But dividends will rise over time – and surprising things happen when you reinvest them. Picture a snowball rolling down hill. Albert Einstein understood this. As he observed, money compounding “is the most powerful force in the universe.”  Read More

Boring Terms We Need To Know: Yield On Cost

In order to analyze dividend stocks we need to understand some boring statistical terms. Since I'm going to use these terms a lot, I thought it would be best for me to explain them one at a time.  Although these terms initially may sound complicated, I think you'll find they're not that difficult at all to comprehend.

The first term we'll discuss is one that you'll hear me talk about quite a bit when referring to my own portfolio, Yield on Cost (YOC).

Stock Sale

Its been a brutal week for stocks with the S&P 500 down more than 6% as of Friday afternoon.  It's weeks like this that make me realize I'm not a typical trader.  Despite all the doom and gloom headlines about the market, I find myself getting excited.  It's not because I'm shorting stocks (making money when stocks go down), it's because these are the absolute best times to buy high-quality dividend stocks at a discount.  It's time to put some cash in my brokerage account because the market is having a Stock Sale!

KA-CHING! I just got a 25% raise

You probably think today was a bad day for the market with the DOW dropping nearly 2.5%, but I could care less.  Why, because Microsoft (MSFT) raised its dividend by 25% today from $0.64 to $0.80 a year.  At its current price of around $26, that translates to a yield of 3%.

MSFT started paying a dividend in 2003 at which time they paid $0.32 a year in dividends.  When they began paying a dividend you could have bought them for about the same price they sell for today.  Most people would think that's a horrible return, but I think that's pretty darn good considering that is over one of the worst recessions our country has seen.  But the thing we should focus on is not the price over that period, no we care about the fact that MFST has raised its dividend 150% in the past 8 years.  

Dividend Stock Analysis: Intel (INTC)

Ok, so we've covered why we should be investing in dividend stocks and how to get started. so now its time to have some (nerdy) fun and analyze a specific dividend stock.

Intel (INTC) represents the largest holding in my portfolio.  I have been allocating it for several years now and will continue to do so while the price, in my opinion, is undervalued.  What I really love about Intel is that it is paying around a 4% dividend yield, which is unheard of for a technology company.  I plan to analyze the Technology sector and their growing popularity as viable dividend stocks in later posts, but lets focus just on Intel for now.

Getting Started in Dividend Investing

Getting started in dividend investing is fairly simple these days. With a few clicks of your mouse and some cash you can be up and running in no time.  The following is what you'll need to begin:

1. A way to purchase stock
2. A dedication to periodic investment
3. Research tools to choose our stocks
4. Time (yeah, that one again)

A fun example to prove my point

So you've heard me talk about how great dividend stocks are and how they can build serious wealth over time, but I haven't really proven this with a real-world example.  I thought about putting together an example of if your great-great-grandparents bought $100 of Colgate-Palmolive back in 1885 when they first started (and have never stopped since) paying a dividend and how it would be worth millions today... but that's hard to relate too.

Instead I'd like to give an example of a company that has paid a dividend since the mid 90's.  Its a company I have owned for several years now in my Roth IRA. Of course this is still an extraordinary example, but it truly demonstrates the power of dividend investing. The stock is Realty Income (O), a real estate investment trust (REIT).

Why Dividend Stocks

I'm sure many of you played Monopoly when you were younger, some may even remember the Chance card to the left. It wasn't near as good as getting the "Pass Go and Collect $200", but it wasn't a bad card since it added a little more cash to your pile (and it beat getting a lousy 2nd place in a beauty contest). This card didn't mean much to me when I was younger, but it makes a lot more sense these days. What I really enjoy about this is how the man (Rich Uncle Pennybags) is kicking back in his chair, legs on his desk, smoking a cigar. You would have a hard time finding an image that better personified a dividend investor, or what a dividend investor is striving towards.

This is what I want in 25 years. I want to be kicking back and relaxing while high-quality, financially sound companies provide me with constant and ever-increasing flow of passive income. I don't want to be concerned with the day-to-day fluctuations of the stock market. I want to be on the golf course, on a boat, at a ballgame, or on my couch enjoying life while companies work hard to increase my income.

Sounds like a great dream right? I think so too, and you'd be surprised how easily this can be achieved through a dividend investing strategy. We just need the following to accomplish this dream:

Get Rich... Slow

"You could see 1900% gains in one year with this stock!!" "Double your money in just 4 weeks!" "Buy this stock before the end of the month or you'll regret it!"  Sound familiar?

I'm sure most of you have gotten spam emails, junk mail, or possibly even telemarketers that have spouted this type of nonsense.  Sometimes the marketing of the adds can be tempting, I've certainly been intrigued at times.  A few times I even did a bunch of research online and found out what stock they were talking about and invested.  Guess what happened 95% of the time?  Lost money?  Check.  Felt like a sucker?  Check.  Got intrigued by another marketing pitch?  um... yeah ok, fine, Check.

Around 2005 I finally got wise.  I stopped chasing the quick buck and started seriously thinking about my future.  Not my 5 year, 10 year, or even 20 year future.  No, I started thinking about retirement 30 years away.  I wanted to have an ever-increasing, recurring stream of passive income without having to lift a finger.  I found my answer on how do that, and couldn't believe how easy it would be.  The answer of course, dividend stocks!